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2 Abbott is a globally diversified healthcare company whose central purpose is to help people, at all stages of life, live their best possible lives through better health. We offer a broad portfolio of market-leading products that align with favorable long-term healthcare trends in both developed and developing markets. Building on a strong foundation of more than 125 years of success, our company is poised to deliver durable growth, expanding margins, strong cash flow, and increasing returns to shareholders. TABLE OF CONTENTS 1 Letter to Shareholders 5 Life. To the Fullest. 16 Nutrition 20 Medical Devices 24 Diagnostics 28 Established Pharmaceuticals 32 Financial Report 33 Consolidated Financial Statements and Notes 57 Management Report on Internal Control Over Financial Reporting 58 Reports of Independent Registered Public Accounting Firm 60 Financial Instruments and Risk Management 61 Financial Review 74 Summary of Selected Financial Data 75 Directors and Corporate Officers 76 Shareholder and Corporate Information ON THE COVER: JULIANA AULER S ÃO PAU LO, B R A Z I L GLUCERNA Juliana Auler is an English teacher, translator and dedicated mom to a highly active toddler. As a person with diabetes, Juliana understands better than most the importance of proper nutrition. She relies on Glucerna to help fill in the gaps in her diet, while keeping her blood sugar at optimal levels.

3 MILES WHITE Chairman of the Board and Chief Executive Officer DEAR FELLOW SHAREHOLDER: Our purpose at Abbott is to help people live the best lives they can, through better health. In 2014, through our strong performance and strategic actions, we positioned ourselves to do so for more people than ever before.

4 LETTER TO OUR SHAREHOLDERS In 2014 we saw the new Abbott in full was our year of separation, 2013 a year of establishing the template of the new company we d become. Last year was our first opportunity to run that company flat out. And we were very happy with what we saw and how we performed was a very good year for Abbott one that clearly demonstrated how we ll compete and succeed in the years ahead. STRONG CASH FLOW $3.5 Billion Returned to shareholders through dividends and share repurchases Throughout the year, we built for the future in multiple ways. All of them made our company stronger, more competitive, and better able to help more people in more ways. Our strategic actions in 2014 significantly enhanced our established competitive strengths: BALANCE Well-balanced diversity is the foundation of Abbott s strategy and success. Our four major businesses are of roughly equal size, and that balance extends across geographies and our mix of payers. We constantly shape our portfolio to ensure that we re in the right markets and that our success isn t over-reliant on any single therapy, technology, or country. This year, we took several actions in our Established Pharmaceuticals business, strengthening its product portfolio, building its geographic presence, and increasing its focus on growth markets. First, we expanded this business through our acquisitions of CFR Pharmaceuticals and Veropharm, which significantly enhanced our product portfolio and our presence throughout Latin America and Russia, respectively, making Abbott a top-ten player in both regions. At the same time we agreed to sell our developedmarkets branded-generics business to Mylan Inc., focusing this business entirely on faster-growing markets. We further focused our company on enhancing human health by agreeing to sell our Animal Health business to Zoetis and by entering a large and growing new therapeutic area electrophysiology for people with atrial fibrillation through our acquisition of Topera. GLOBAL PRESENCE Today s Abbott is one of the most globalized of all healthcare companies, with about half of our sales now in faster-growing geographies. To support our strong global growth, we re expanding infrastructure around the world. In 2014, we added a new vaccine facility in the Netherlands, nutrition plants in China, India, and the United States, and are adding a new optics facility in Malaysia to meet growing demand in those regions. In a highly innovative move, we also agreed to co-develop a dairy-farm hub in China, which will deepen our roots in the country and strengthen our supply chain. These investments are a reflection of the strong underlying demand for high-quality adult and pediatric nutrition products. Our intent is to design and manufacture products around the world to ensure that they re geared to local needs and preferences, that we can produce them efficiently, and that we build our presence and strengthen our relationships with key stakeholders in every country in which we do business. RELEVANCE Abbott is well positioned to grow with the major trends in our business and the broader global environment. The growth of developing economies and the global middle class has vastly expanded our markets and ability to help more people around the world. A related and equally powerful trend driving our business is the aging of the global population. Today, about 23 percent of the people in the key markets we serve are age 50 or older; the United Nations projects this to grow to 40 percent by Abbott has a wide range of leading products designed specifically for older people who use more healthcare than others. Cataract removal, for instance, is the world s most-performed surgery; we re currently the No. 2 provider of cataract surgical instruments and lenses, and are gaining market share through the introduction of new products such as our new Catalys system. This patient group also often requires intraocular lenses to help them focus their sight. To that end, this year we began the global rollout of two new Tecnis Symfony lenses. And in our Vascular business we launched our MitraClip device in the U.S. to treat mitral valve regurgitation, a heart condition that is strongly correlated with age. 2

6 LETTER TO OUR SHAREHOLDERS LEADING Abbott intends to lead both scientifically and commercially in the markets in which we compete underscored that leadership across our businesses. For example: In Diabetes Care we launched our game-changing new glucose-monitoring technology, Freestyle Libre, in Europe. This revolutionary, first-of-its-kind product solves our customers biggest problem in this therapeutic area: having to stick their fingers repeatedly to draw blood for testing. Libre allows the user to read the data wirelessly by simply passing an electronic reader over a disposable sensor worn on the body. Our Nutrition business has averaged more than 70 new-product launches annually over the past several years. This includes innovations customized for the markets we serve, such as Eleva, a new formula designed to promote absorption of key eye and brain nutrients for infants in China. And we brought our worldleading adult nutrition business to China with the launch there of Ensure. In Diagnostics, our Iridica moleculartesting platform another revolutionary new technology has been approved in Europe to more quickly diagnose serious infections, such as sepsis. At the same time, we re also updating our full range of existing diagnostic platforms both systems and tests. DURABLE These strengths add up to the fundamental advantage that we offer investors: Durability. Abbott is built strong and built to last; that s how we ve succeeded in delivering superior innovation, productivity, and growth with such remarkable consistency and reliability. FOCUS ON FASTER- GROWTH MARKETS 12.5% Operational sales growth in emerging markets We build and manage our company to navigate environmental volatility and keep providing the performance, the return, and the dependability that you look to us for. PERFORMANCE For the full-year 2014, we achieved sales growth of 5.5 percent, excluding the unfavorable impact from foreign exchange. Our operational sales growth rates, again excluding the impact of exchange, improved sequentially over the course of the year, as expected, and operational sales in emerging markets, including the impact of 2014 acquisitions, increased 12.5 percent. At the same time, we expanded our operating margin and achieved year-over-year strong, double-digit operating earnings growth. In addition to this strong performance, we raised our quarterly dividend by 57 percent versus 2013 and by more than 9 percent in December LIFE. TO THE FULLEST. The highlights I ve discussed above exemplify well-established ways in which Abbott has succeeded for many years. In 2014 we also took a strong step in a new direction for us, adding a major new dimension to our competitive capability. With half our sales today direct to consumers and half in emerging markets where we re often establishing our presence, it s more important than ever in Abbott s history that we have a powerful, highly-recognized global identity to help us connect more strongly and directly with the people who use our products. To do so, last year we launched our new corporate brand identity: Life. To the Fullest. Life. To the Fullest. symbolizes our belief that health is the foundation for everything we can achieve in life. It s the great enabler the thing that makes all else possible. And it expresses our commitment to helping people get as much out of their lives as possible through better health. Through actions like those we took last year, this is exactly what we re doing. Today s Abbott is helping more people in more ways than ever before. We intend to make Life. To the Fullest. the most recognized brand in our business, and make Abbott synonymous with not just healthcare, but with health itself and all that it means for the people we serve. Miles D. White Chairman of the Board and Chief Executive Officer March 2,

7 LIFE. Good health is the great enabler, helping people live not just longer, but better. 5

8 TO THE FULLEST. Abbott s fundamental purpose is helping people get healthy and stay healthy, at all stages of life, so they can enjoy their best possible lives. We draw on our key strengths our diversity of products and markets, our unwavering commitment to quality, a holistic approach to addressing health needs, and our commitment to locally targeted solutions to maximize the impact we can have on the world. 6

11 BALANCED AND DIVERSE PORTFOLIO >10,000 PRODUCTS We are not dependent upon any single product to deliver growth BALANCED CUSTOMER MIX An even split of payer types helps drive growth and reduces volatility 50% CONSUMER- FACING 50% THIRD-PARTY PAYERS 9

12 PRESENCE WE ARE WELL ESTABLISHED IN THE LARGEST AND FASTEST-GROWING MARKETS IN THE WORLD, WHICH POSITIONS US TO GROW AND HAVE THE GREATEST IMPACT ON GLOBAL HEALTH. INTERNATIONAL STRENGTH EMERGING MARKET PRESENCE 70% ~50% Sales from outside the U.S. Sales from emerging markets Strong outside the U.S. Well positioned in key emerging growth markets 10

13 GLOBAL MARKET BREADTH 11 LARGEST MARKETS 64% of sales Well distributed across the world s largest healthcare markets 11

14 RELEVANCE OUR BUSINESS IS WELL ALIGNED WITH IMPORTANT GLOBAL ECONOMIC AND DEMOGRAPHIC TRENDS, POSITIONING US FOR RELIABLE LONG-TERM GROWTH. ECONOMIC GROWTH Growth in Total Gross Domestic Product AGING POPULATION Percent of Population Over 50 Years Old 2.0% DEVELOPED ECONOMIES 23% TODAY 40% % EMERGING ECONOMIES By 2050, 40% of the population in our key markets will be over 50 years old Healthcare spending is 18% of GDP in the U.S., but just 6%, and rising, in fastgrowing emerging markets, providing tremendous long-term potential Abbott is a recognized leader in addressing many conditions associated with aging, such as diabetes, cataracts, and cardiovascular disease 12

15 GROWING MIDDLE CLASS IN EMERGING MARKETS As economies expand and incomes rise, people and their governments have more resources to devote to health 13

16 LEADING PRESENCE AROUND THE WORLD >150 Sales in more than 150 countries We have a strong commercial presence in every region of the world 14

17 LEADERSHIP WITH LEADING PRODUCTS IN EVERY BUSINESS, ABBOTT IS WELL POSITIONED NOT JUST TO RESPOND TO EXTERNAL CHANGES BUT TO DRIVE CHANGE IN THE MANY MARKETS WE SERVE. LEADING PRODUCT BRANDS BUILDING A LEADING BRAND #1 We have the number 1 or 2 brand in 75 important product categories Consumers and providers put their trust in Abbott products across the full spectrum of healthcare life. to the fullest. We re making strategic investments to build our corporate identity, ensuring people know who Abbott is and how we make their lives better 15

18 NUTRITION SCIENCE-BASED NUTRITION FOR EVERY STAGE OF LIFE Vy Đ ăng Lê Khánh of Ho Chi Minh City, Vietnam is a happy, healthy first-grader who s always on the go. Her parents trust PediaSure to help ensure Vy is getting all the nutrients she needs. P ED I A S U R E, COMPLETE NUTRITION 16

19 Ho Chi Minh City, Vietnam The restless energy of Ho Chi Minh City sets the pace for Vietnam s rapidly growing economy. As the commercial hub of the country, it s a city that s always on the move. That s a description that could easily be applied to six-year-old Vy Đăng Lê Khánh, a bundle of energy who loves playing with her friends, going to museums, and drawing. Vy likes PediaSure because it tastes good. Her parents appreciate the fact that it delivers the nutrition she ll need to reach her full potential. Vietnam is one of the many fast-growing markets in which Abbott is steadily expanding its presence. In 2014, emerging markets accounted for just under half of Abbott s nutrition sales, but they represented the majority of the operational sales growth in this business. In 2014, we deepened our roots and supported our continuing growth in these regions through targeted investments in local infrastructure, opening new nutrition manufacturing plants in China and India. These facilities, combined with a newly opened plant in the United States, will help us better meet growing global demand for both pediatric and adult nutritional products. To expand our commitment to customers in China, we announced a strategic alliance with Fonterra, the world s largest global milk processor and dairy exporter, to develop a proposed dairy-farm hub in China. With this joint venture, which is subject to Chinese regulatory approval, we can help make a positive contribution to the growth and development of China s dairy industry. 17

20 2014 Business Review NUTRITION OUR MOST CONSUMER- FACING BUSINESS Throughout the world, people count on Abbott to help them get healthy and stay healthy throughout their lives. With our broad line of sciencebased products from the complete nutrition of Similac, PediaSure, and Ensure, to condition-specific nutritionals like Glucerna for people with diabetes, and Nepro for dialysis patients, to healthy-living brands like EAS and ZonePerfect Abbott can help people at every stage of life reach their full potential. 18 INNOVATIONS EXPAND MARKETS, FUEL GROWTH Similac Qinti and Eleva, infant formula brands created specifically for the Chinese market Similac Breastfeeding Supplement, launched in the U.S., is designed to enhance levels of DHA, lutein, and vitamin E in breast milk Ensure Compact, concentrated nutrition launched in Europe PediaSure Kesar Badam, a saffron almond flavor, developed and launched in India Ensure brand launched in China; represents a significant long-term growth opportunity 44% Abbott is the worldwide leader in adult nutrition, a segment that represents almost half of our sales in this business. 65 new product launches in 2014

21 INFANT ADULT PERFORMANCE 2014 BUSINESS HIGHLIGHTS Opened state-of-the-art nutrition manufacturing plants in China, India, and the United States Opened nutrition R&D center in China Announced a partnership with Fonterra to develop a dairy-farm hub in China ~50 consumer brands U.S. GROWTH POTENTIAL IN ADULT NUTRITION 9.8 million users Current Users 33.6 million users Open to using Nutrition supplements ~100 countries #1or2 in 25 countries Abbott s leading brands provide a strong foundation to help us shape the markets we serve and create new opportunities for our nutrition business. 19

23 Los Angeles, California, USA Dr. Chester Barnes is a life-long resident of Los Angeles, California, USA, where he spent more than 50 years as a family physician. In 2014, he was scheduled for pacemaker surgery, but he had persistent fatigue and shortness of breath that were symptoms of another cardiac problem. His mitral valve, which helps keep blood flowing the right way as the heart beats, was damaged. His doctors determined that the best way to repair the valve was to use a minimally invasive procedure employing Abbott s MitraClip valve repair device. After the procedure, and after receiving a new pacemaker, Dr. Barnes felt his energy returning, and soon he was able to get back the life he loved, gardening, spending time with his grandchildren, and volunteering in his community. Mitraclip is just one of many examples of the breakthrough products from Abbott s Medical Devices group, which includes our Diabetes Care, Vascular and Vision Care businesses. As the world s population ages, we will see a corresponding increase in the prevalence of conditions that are associated with aging like heart disease, diabetes, and cataracts. Abbott s portfolio of targeted technologies is well aligned with these trends, with products that can help people recover more quickly, monitor more accurately and see more clearly. Abbott s device businesses share a fundamental commitment to delivering advanced technologies that dramatically improve outcomes, while contributing to lower overall healthcare costs. In 2014, Abbott expanded the scope of this organization when we entered the transcatheter electrophysiology market by acquiring Topera, Inc. 21

24 2014 Business Review MEDICAL DEVICES LEADERSHIP IN PATIENT- FOCUSED TECHNOLOGY In our Medical Devices business, Abbott harnesses the power of innovation to make a clear, positive difference in people s lives. Many of our products like our Absorb bioresorbable vascular scaffold, our FreeStyle Libre glucose monitoring system, or our Tecnis Symfony extended-rangeof-vision intraocular lens are first-of-their-kind breakthroughs, solutions that dramatically change the way people treat their conditions BUSINESS HIGHLIGHTS DIABETES CARE FreeStyle Libre launched in Europe, revolutionizing glucose monitoring FreeStyle Precision Neo, a consumer blood-glucose monitoring system, launched in the U.S. VISION CARE Tecnis Symfony intraocular lens launched in Europe, provides full range of vision with limited glare and reduced halos Catalys Laser Precision System lets cataract surgeons use our proprietary 3D imaging system to provide patients more customized care VASCULAR / CARDIAC CARE Next-generation medicated heart stent, Xience Alpine, approved in the U.S. and Japan Completed patient enrollment in clinical trials for the Absorb bioresorbable vascular scaffold to support regulatory approvals in the U.S., Japan and China MitraClip access expanded in the U.S. with Medicare National Coverage Determination and new technology addon payment; device now available in more than 30 countries Entered rapidly growing field of transcatheter electrophysiology with acquisition of Topera, Inc.

27 Guangzhou, China KingMed Diagnostics runs thousands of immunoassay, clinical chemistry, and molecular diagnostic tests every day. They rely on Abbott s integrated testing and datamanagement solutions to provide results that improve patient outcomes while reducing overall costs. In that sense, KingMed is just like thousands of other Abbott diagnostics customers all around the world. Today, healthcare providers are looking for ever faster and more accurate methods to evaluate and treat their patients. Abbott s diagnostics businesses Core Laboratory, Molecular and Point of Care offer distinctly different technologies and solutions, but they share a focus on helping healthcare systems detect health risks and disease at earlier stages, improving treatment and disease management, while diminishing subsequent health problems and their associated costs. With a more than 60-year history in diagnostics, we re positioned for growth. We re expanding our presence in the core laboratory market segment to improve the efficiency, speed, and accuracy of patient tests, while managing the vast amount of information flowing through the lab. We ll leverage our deep expertise in infectious-disease testing to help improve the treatment of people with viruses and unknown infections. We are delivering new point-of-care testing capabilities that help accelerate treatment decisions. And we re building our presence in fast-growing markets like China to meet the increased demand in those regions. 25

28 2014 Business Review DIAGNOSTICS TRANSFORMING THE CONTINUUM OF CARE Abbott offers a broad range of innovative diagnostics instrument systems and solutions for hospitals, reference labs, molecular labs, blood banks, physician offices, and clinics. Our diagnostic products are helping our customers better meet the changing needs of global healthcare. More than simply tests or data points, our diagnostic solutions work together to help improve decision making and patient care across the spectrum of healthcare BUSINESS HIGHLIGHTS Announced European regulatory approval for the Iridica system, a first-of-its-kind technology designed to identify disease-causing pathogens, such as bacteria, fungi or viruses, significantly faster than the current standard of care Announced partnership with the U.S. Department of Defense to develop portable blood tests for the i-stat point-of-care testing system to evaluate potential concussions Launched ARCHITECT Clinical Chemistry Hemoglobin A1c test, enabling physicians to quickly assess a person s average blood-glucose concentration over several months, aiding in the diagnosis of diabetes and helping identify patients who may be at risk for developing the disease Demonstrated value of i-stat point-of-care testing system during the West African Ebola outbreak, providing measures of key bodily functions while keeping samples within quarantined areas Continued development of next-generation hematology, blood-screening, immunochemistry, molecular, and point-of-care testing platforms 26

30 ESTABLISHED PHARMACEUTICALS TRUSTED BRANDS IN FAST-GROWING MARKETS Thanks to a trusted medicine that helped him take control of his cholesterol, Alberto Wilson is better able to relax and enjoy the things and the people that really matter to him. NORMOLIP, FOR LIPID CONTROL 28

31 Bogota, Colombia Alberto Wilson of Bogota, Colombia, is a busy commercial advisor with active twin 11-yearold sons, Andres and Phillip. Whenever he can, Alberto loves to spend time with his boys, taking walks in the neighborhood park, watching them play soccer, and visiting historic places and the scenic mountains that flank the city. Alberto loves to lead an active lifestyle. So when he learned that he was suffering from high cholesterol, he knew he had to find a way to manage his condition. He relied on our Normolip brand fenofibrate to help lower his triglycerides and raise his levels of highdensity lipoprotein, also known as HDL, the good cholesterol. Normolip is just one drug in a portfolio that includes some of the world s most-trusted brands. In 2014, Abbott made a series of strategic moves that will refocus and strengthen this business. First, we completed our acquisitions of two regional branded-generic pharmaceutical companies to expand our footprint in important markets. In September, we added CFR Pharmaceuticals, one of the leading branded-generics companies in Latin America, based in Santiago, Chile. With this deal, Abbott became one of the top ten pharmaceutical companies in Latin America. At the end of the year, we completed our acquisition of Veropharm, making us a top-five branded-generics company in Russia. And in July, we agreed to sell the Developed Markets portion of this business to Mylan Inc. This transaction, which was completed in February 2015, will allow us to focus our energies entirely on driving balanced, sustainable, and faster growth in developing markets. 29

32 2014 Business Review ESTABLISHED PHARMACEUTICALS EMERGING OPPORTUNITIES TO MAKE A DIFFERENCE As economies around the world expand, people have more resources to devote to healthcare and, increasingly, more choice in how that money is spent. When given that choice, they look for the promise of quality and efficacy that Abbott s pharmaceutical brands represent. Over the next several years, our focus on developing markets will fuel our growth, as Abbott is well aligned with the fundamentals driving long-term growth for healthcare in these regions BUSINESS HIGHLIGHTS With the sale of our Developed Markets pharmaceuticals business to Mylan, Abbott will focus its energies in emerging markets Acquisition of CFR Pharmaceuticals makes Abbott a top-ten company in Latin America Acquisition of Veropharm strengthens Abbott s commercial presence, R&D capability, manufacturing capacity, and ability to serve patients in Russia Abbott focuses on six core therapeutic areas in which we have strong brands and the ability to address significant customer needs. These areas are: Gastroenterology Women s Health Cardio-Metabolic Pain/Central Nervous System Respiratory Anti-Infectives Influenza Vaccine 30

33 REGIONAL PORTFOLIOS GLOBAL STRENGTH TRUSTED BRANDS PROJECTED GROWTH OF GROSS DOMESTIC PRODUCT NUMBER ONE Abbott is the No. 1 pharmaceutical company in India, Chile, Colombia, and Peru, and top five in Russia. LATIN AMERICA +3.4% TOTAL DEVELOPED MARKETS +2.0% TOTAL EMERGING MARKETS +4.6% CHINA +6.7% Healthcare spending is 18 percent of gross domestic product in the United States, but just 6 percent, and rising, in fast-growing emerging markets 27 manufacturing sites ensure reliable local supply >1,500 products in our portfolio 10 pharmaceutical development sites 88 countries in which we have commercial presence EMERGING PHARMACEUTICAL MARKETS ARE CONSUMER ORIENTED 75% self-pay 25% third-party payers Given the choice, consumers opt for brands they know and trust 31

41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Abbott s principal business is the discovery, development, manufacture and sale of a broad line of health care products. Changes in Presentation On January 1, 2013, Abbott completed the separation of AbbVie Inc., which was formed to hold Abbott s research-based proprietary pharmaceuticals business. The historical operating results of the research-based proprietary pharmaceuticals business prior to separation are excluded from Earnings from Continuing Operations and are presented on the Earnings from Discontinued Operations line in Abbott s Consolidated Statement of Earnings. The assets, liabilities, and cash flows of the research-based proprietary pharmaceuticals business are included in Abbott s Consolidated Balance Sheet and its Consolidated Statements of Cash Flows for periods prior to January 1, See Note 2 for additional information. In July 2014, Abbott announced that it will sell its developed markets branded generics pharmaceuticals business to Mylan Inc. (Mylan) for equity ownership of a newly formed entity that will combine Mylan s existing business and Abbott s developed markets pharmaceuticals business, and will be publicly traded. The sale of this business closed on February 27, In November 2014, Abbott entered into an agreement to sell its animal health business to Zoetis Inc. The sale of this business closed on February 10, The historical operating results of these businesses are excluded from Earnings from Continuing Operations and are presented on the Earnings from Discontinued Operations line in Abbott s Consolidated Statement of Earnings. The assets and liabilities of these businesses are being reported as held for sale in Abbott s Consolidated Balance Sheet at December 31, The cash flows of these businesses are included in its Consolidated Statements of Cash Flows for all periods presented. See Note 3 Discontinued Operations for additional information. Basis of Consolidation The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions. Use of Estimates The financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for sales rebates; income taxes; pension and other post-employment benefits, including certain asset values that are based on significant unobservable inputs; valuation of intangible assets; litigation; derivative financial instruments; and inventory and accounts receivable exposures. Foreign Currency Translation The statements of earnings of foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using average exchange rates for the period. The net assets of foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using exchange rates as of the balance sheet date. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in equity as a component of accumulated other comprehensive income (loss). Transaction gains and losses are recorded in earnings and were not significant for any of the periods presented. Revenue Recognition Revenue from product sales is recognized upon passage of title and risk of loss to customers. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Revenue from the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer s normal requirements are recorded when the conditions noted above are met. In those situations, management records a returns reserve for such revenue, if necessary. In certain of Abbott s businesses, primarily within diagnostics and medical optics, Abbott participates in selling arrangements that include multiple deliverables (e.g., instruments, reagents, procedures, and service agreements). Under these arrangements, Abbott recognizes revenue upon delivery of the product or performance of the service and allocates the revenue based on the relative selling price of each deliverable, which is based primarily on vendor specific objective evidence. Sales of product rights for marketable products are recorded as revenue upon disposition of the rights. Revenue from license of product rights, or for performance of research or selling activities, is recorded over the periods earned. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No , Revenue from Contracts with Customers, which provides a single comprehensive model for accounting for revenue from contracts with customers and will supersede most existing revenue recognition guidance. Early adoption is not permitted. The standard becomes effective for Abbott in the first quarter of Abbott is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements and related disclosures. Income Taxes Deferred income taxes are provided for the tax effect of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at the enacted statutory rate to be in effect when the taxes are paid. U.S. income taxes are provided on those earnings of foreign subsidiaries which are intended to be remitted to the parent company. Deferred income taxes are not provided on undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment. Interest and penalties on income tax obligations are included in taxes on income. Earnings Per Share Unvested restricted stock that contain non-forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two-class method. Under the two-class method, net earnings are allocated between common shares and participating securities. Earnings from Continuing Operations allocated to common shares in 2014, 2013 and 2012 were $1.713 billion, $1.979 billion and $236 million, respectively. Net earnings allocated to common shares in 2014, 2013 and 2012 were $2.273 billion, $2.558 billion and $5.917 billion, respectively. 39

42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension and Post-Employment Benefits Abbott accrues for the actuarially determined cost of pension and post-employment benefits over the service attribution periods of the employees. Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. Differences between the expected long-term return on plan assets and the actual return are amortized over a five-year period. Actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method. Fair Value Measurements For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black Scholes model. Purchased intangible assets are recorded at fair value. The fair value of significant purchased intangible assets is based on independent appraisals. Abbott uses a discounted cash flow model to value intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants. Intangible assets, goodwill and indefinite lived intangible assets are reviewed for impairment at least on a quarterly and annual basis, respectively. Share Based Compensation The value of stock options and restricted stock awards and units are amortized over their requisite service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. Litigation Abbott accounts for litigation losses in accordance with FASB ASC No. 450, Contingencies. Under ASC No. 450, loss contingency provisions are recorded for probable losses at management s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. Legal fees are recorded as incurred. Cash, Cash Equivalents and Investments Cash equivalents consist of bank time deposits and U.S. treasury bills with original maturities of three months or less. Investments in two publicly traded companies, with a carrying value of approximately $95 million, are accounted for under the equity method of accounting. All other investments in marketable equity securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses, net of tax, included in Accumulated other comprehensive income (loss). Investments in equity securities that are not traded on public stock exchanges are recorded at cost. Investments in debt securities are classified as held-to-maturity, as management has both the intent and ability to hold these securities to maturity, and are reported at cost, net of any unamortized premium or discount. Income relating to these securities is reported as interest income. Abbott reviews the carrying value of investments each quarter to determine whether an other than temporary decline in fair value exists. Abbott considers factors affecting the investee, factors affecting the industry the investee operates in and general equity market trends. Abbott considers the length of time an investment s fair value has been below carrying value and the near-term prospects for recovery to carrying value. When Abbott determines that an other than temporary decline has occurred, the investment is written down with a charge to Other (income) expense, net. Trade Receivable Valuations Accounts receivable are stated at their net realizable value. The allowance against gross trade receivables reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Accounts receivable are charged off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market. Cost includes material and conversion costs. Property and Equipment Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment: Classification Buildings Equipment Estimated Useful Lives 10 to 50 years (average 27 years) 3 to 20 years (average 11 years) Product Liability Abbott accrues for product liability claims when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The liabilities are adjusted quarterly as additional information becomes available. Receivables for insurance recoveries for product liability claims are recorded as assets, on an undiscounted basis, when it is probable that a recovery will be realized. Product liability losses are self-insured. Research and Development Costs Internal research and development costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone results are achieved. Acquired In-Process and Collaborations Research and Development (IPR&D) The initial costs of rights to IPR&D projects obtained in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical products. The fair value of IPR&D projects acquired in a business combination are capitalized and accounted for as indefinite lived intangible assets until completed and are then amortized over the remaining useful life. Collaborations are not significant for continuing operations. 40

Consolidated Financial Statements of the Company The consolidated balance sheet, statement of income, and statement of equity of the Company are as follows. Please note the Company s consolidated financial

Consolidated Financial Statements of the Company The consolidated balance sheet, statement of income, and statement of equity of the Company are as follows. Please note the Company s consolidated financial

2013 ANNUAL REPORT Abbott is a global healthcare company. Our unique mix of businesses and broadly diversified portfolio of market-leading products is aligned with long-term healthcare trends in both developed

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